Trying To Take Out A Loan For The First Time? Here Are A Few Things You Should Know

Trying To Take Out A Loan For The First Time? Here Are A Few Things You Should Know

Finance

Individuals often tend to get wrapped up in a multitude of expenditures in today’s modern world, some of whom are medical, academic, properties, and so forth. Such expenditures are perhaps the more costly, which is presumably why individuals prefer to rely on loans to remedy the situation.

Applying For A Loan

Unless you really are in need of money, do not opt for loans. You should always consider loans to be your last resort for financial problems. You should also keep distance from loans if you have a poor credit score and history.

You also have something called a loan calculator which helps you calculate the amount of loan, you owe to the bank.

So if you have obtained a loan, you can use this platform to calculate your monthly payments.

With that being said, there are certain things for which you may require money, it could be for any reason.

Here is list of reasons why people obtain loans

  • Invest in a business
  • Consolidation of debt
  • Purchasing a home
  • Purchase of a new car
  • Handling your medical bills
  • Significant miscellaneous expenditure
  • Academic fees
  • vacation

When you’re availing a loan in the UK, you are required to show certain documentation that acts as a proof of your age and residence.

Here are the documents you can use as your proof of identity

  • A driver’s license
  • A passport
  • Biometric Residence Permit

Here are the documents you use as your proof of residence

  • HMRC tax notification letter
  • UK credit agency statement
  • Latest utility bill
  • A driving licence

But bear in mind that you do not have the option of using one document as a proof of residence and identity.

See Also: 7 Mistakes You Should Avoid When Applying for a Business Loan

Types Of Loans

There are many types of loans that an individual can acquire, but primarily there are two types of loans, namely unsecured and secured loans.

Unsecured Loans

When it comes to unsecured loans, you can acquire these types of loans without having to offer anything as a collateral to the banking firm. This means that you do not have to set aside valuable property against the loan you will be obtaining.

When it comes to unsecured loans, the main determining factor of whether you will get a loan or not is your credit score you have.

Although you do not require a collateral for an unsecured loan, you do need to have a steady source of income.

Here are a couple of benefits that you can get from unsecured loans

  • Applying for such loans is an easy process that can be done from home, you do not need to go to a bank for the very same purpose. Once you submit the application for a loan, you will be given a status update about it after 24 hours. As mentioned before, the likelihood of obtaining an unsecured loan is high only if you have a good credit score and a steady income.
  • You would’ve understood by now that you are not required to offer a collateral against your loan, this is exactly why unsecured loans are popular among people. If you do not make timely payments then the financial institutions will not take your personal assets.

But just like every coin has two sides to it, this one does too. Here are a few disadvantages of unsecured loans.

  • The very fact that you do not have to offer a collateral is why banking firms will charge you with higher interest rates. This is mainly to cover the risk they are putting themselves in. Loans with higher interest rates may cause problems during the repayment period.
  • Unsecured loans may be easy to apply for, but getting the application approved is whole another game. This mainly depends on the credit score and the job you have.

Secured Loans

As you would’ve guessed, are quite the opposite of unsecured loans, these loans require you to place a valuable asset as collateral against the loan you are obtaining. This means, if you fail to pay back the loan, then you will be required to part with the valuable asset which was offered as a collateral.

And just like unsecured loans, secured loans have their fair share of advantages and disadvantages

Here are some of the advantages

  • You have the choice of reducing the repayment fees and paying them over a prolonged period of time. Although this will benefit you in the short run, you’re going to have to make significantly higher repayments because the interest is going to grow over the period.
  • You can use a secured loan to cover almost any cost, as far as it is legal. Although if you intend to collect more funds by remortgage, you may have limitations on use.

Here are some disadvantages of secured loans

  • As you know, you could possibly forfeit your home or any other property you offer as leverage. This is the biggest drawback of opting for a secured loan. In other terms, you should not risk missing or making late payments on your loan.
  • Usually, secured loans have lower interest rates. But here’s the thing, these interest rates also vary from time to time. The rate of interest may shoot up any time, you should keep this factor in mind when you’re opting for a secured loan.

Overview

These are the main two types of loans that one can acquire, there are several other types of loans under secured and unsecured loans that people can opt for. For example, people can choose payday loans, business loans, fresh start loans, and many more.

So make sure you read up about the type of loan you want and then go ahead with applying for it.


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Author: Simon Robert

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